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Ross H. Stanfield, president and CEO of Gallowai Metal Mining Corp.

Photograph by: handout, .

During the past 33 years, Calgary promoter Ross H. Stanfield has raised more than $220 million from 3,765 investors to develop gold, platinum and feldspar deposits on the Gallowai Bull River property 40 kilometres southeast of Cranbrook.

Stanfield has repeatedly told investors in his privately held companies, Gallowai Metal Mining Corp. and Bul River Mineral Corp., that the property is on the verge of production, but it never happens.

Along the way, his companies have been barred, albeit temporarily, from selling shares in B.C., Alberta and Saskatchewan; his consulting geologist has been disciplined by his professional association in Alberta for preparing misleading exploration reports; and geologists at the B.C. mines ministry have repudiated the companies' assay results.

After so many years, so much money, and so many false starts, patience and loyalty is wearing thin.

A group of disgruntled shareholders has filed a minority oppression petition against Gallowai and Bul River in B.C. Supreme Court.

The petition alleges Stanfield — who owns all the voting shares — has been running the companies in an autocratic and secretive manner, and "has failed to live up to the reasonable expectations of non-voting shareholders" to put the mine into production.

The dissidents want the court to oust Stanfield and restructure the companies' boards — which have not held annual general meetings for the last 15 years — to ensure the interests of all shareholders are respected.

Stanfield rejects any suggestion he has short-changed minority shareholders, and has been vigorously opposing the petition, which will be heard in B.C. Supreme Court starting Monday.

EARLY CAREER

According to the court file, Stanfield — now 81 years old — was a co-founder of the massive Gibraltar copper mine near Williams Lake, which went into production in 1972.

In 1976, he acquired the Gallowai Bul River gold property from the Hunt brothers of Texas and began raising money privately.

He told shareholders that his experience with Gibraltar, a publicly traded company, convinced him to develop the property as a private enterprise.

"I felt I could not stomach another public company venture with all the infighting and back stabbing that took place," he explained in a newsletter to shareholders.

He began raising money, initially through Fort Steele Mineral Corp., by selling shares under the "accredited investor" exemption in the Alberta Securities Act.

Under that exemption, he wouldn't have to register the offering with the Alberta Securities Commission as long as each investor bought a minimum of $97,000 in shares.

That meant he wouldn't have to file a prospectus — an offering document that contains all salient details of the investment — and he wouldn't have to provide the sort of continuous disclosure that registered companies must provide, such as quarterly financial statements and news releases announcing material developments.

Furthermore, he wouldn't have to sell shares through registered brokers, who are obliged to review the investment and ensure it is suitable for their clients. Rather, he could use his own sales agents, who were under no such obligation.

And since the shares were not listed on any exchange, his company would not be under the daily scrutiny of market surveillance staff.

It would remain a private affair, between him and his investors, who presumably had the financial savvy and capacity to make such large investments, and didn't need the protections that come with registration, including the right to sell their shares should things go wrong.

By June 1976, Stanfield had sold $1.5 million worth of shares to a variety of companies that were purportedly investing at least $97,000 each.

FIRST INVESTIGATION

However, Alberta Securities Commission investigators found this money was coming from individuals who were investing much smaller amounts. Stanfield had simply been pooling the money in specially formed companies to meet the minimum investment requirement.

One of the investors, for example, was an Edmonton janitor who put in just $10,000, and wasn't sure whether he had received any geological information about the property.

"If ever a group of people needed the protections of the Securities Act, with the registration of sellers ... and with the full, true and plain disclosure of all material facts required by a prospectus, it is this group," the commission hearing panel found.

Then, somewhat cryptically, the panel added: "This is particularly so, when Stanfield admits that there is a warrant for his arrest outstanding in the State of California, in respect of his activities as secretary of a Canadian and American company for which funds were raised in California."

No details were provided.

For breaching their rules, the commission prohibited Stanfield and his company, Fort Steele, from using the accredited investor exemption.

Seven years later — in 1983 — Stanfield applied to have the order revoked. The commission refused, but agreed the order did not apply to Gallowai Metal Mining Corp., the vehicle Stanfield was now using to raise money for the project.

By 1997, Stanfield had expanded his sales efforts to Saskatchewan. In April that year, Gallowai and Bul River held a fundraising seminar in Regina. About 60 people attended.

The Saskatchewan Securities Commission didn't like what went on. It alleged the companies used high-pressure sales tactics, failed to properly answer questions or limited the opportunity for people to ask questions, made misrepresentations or omitted material facts, and gave oral undertakings about the future value of the shares, contrary to securities rules.

In November 1998, Stanfield settled the matter by agreeing to sell only to qualified investors in amounts of $150,000 or more. He also agreed to require prospective investors to obtain professional advice, and limit sales meetings to four non-shareholders.

DUELING GEOLOGY REPORTS

By this time, Stanfield's consulting geologist, Philip de Souza, was reporting a measured and indicated resource on the Gallowai Bul River property of 5.3 million tones of ore containing 2.25 per cent copper, 36 grams of silver and 12 grams of gold per ton.

This was spectacular news, but staff at the B.C. government's Geological Survey Branch were skeptical. These grades were much higher than historic grades from the property. In June 1999, three geologists from the branch — under heavy scrutiny by company officials — entered the property and took ore samples to check against previous assay results.

The results were dismal: The geologists reported the check assays "returned variable copper and silver content, and trace to minor gold," consistent with historic grades. Gold values in mineralized veins ranged from 0.03 grams per ton, to a high of 4.77 grams in one small intersection, well below the 12-gram average reported by de Souza.

Stanfield was outraged. He told shareholders that the assay lab the companies used in Salt Lake City employed a "classical chemical recovery."

"There is absolutely nothing remarkable or magical in the recovery process which really perplexes us, as the laboratories used by the B.C. governments seem unable to recover the metals from the fifteen samples they used to condemn us and our property," he said in a letter to shareholders.

The Salt Lake City lab, however, was not using conventional fire assay methodology, which is the commonly accepted method for determining precious metal content. Metallurgical experts have repeatedly asserted that, if a fire assay can't detect precious metals in an ore sample, there aren't any precious metals there.

CALLING IN THE RUSSIANS

Stanfield, however, was moving into more exotic forms of assaying, and getting excellent results. In early 1999, a private company controlled by Stanfield, Global International Research Ltd., commissioned the All-Russian Research Institute of Chemical Technology in Moscow to assay ore samples from the property.

The Russians found a "potentially large deposit" of platinum group metals using non-conventional assay methods. Stanfield would later tell shareholders that the platinum and palladium grades were rich enough to pay mining and milling costs. Any gold, silver and copper extracted from the property would be "pure profit."

Court documents show that one of Stanfield's co-directors in Global International Research, which commissioned the Russian lab, was the late John Carniel.

Not mentioned is the fact that Carniel previously worked as a consultant for Naxos Resources Ltd., whose spectacular platinum grades were later found to be fraudulent. In 1996, the Vancouver Stock Exchange banned Carniel from association with any of its listed companies on account of his "questionable assay methods."

In December 1999, it issued a seven-page notice of hearing against Stanfield and his two companies, alleging a host of securities offences.

The commission alleged the companies, by allowing investors to pay for their shares in instalments, did not meet the minimum investment requirement to qualify for exemption from registration and prospectus requirements.

The commission further alleged the companies made misrepresentations in their offering memoranda, and in an accompanying exploration report prepared by de Souza.

Those misrepresentations included:

- The same reserve calculations and assay results that were later discredited by the B.C. Geological Survey Branch.

- The assertion that "Gallowai Bul River's gold assays, conducted by a world-respected team, compare very favorably with other major gold producers."

- Projection sheets valuing the shares at $129 each. (The companies were selling shares for $50 at the time.)

A hearing was set for February 2001, but for reasons that were not explained, ASC executive director David Linder filed a notice of discontinuance in November 2001.

Meanwhile, the B.C. Securities Commission had been probing the companies' affairs, and obtained an undertaking from the companies not to use any exemptions to sell shares in B.C. without getting registered and filing a prospectus.

A clause in the agreement permitted the companies to revoke their undertaking on two weeks' notice, which they did shortly after the ASC action was terminated. There is no evidence, however, that the company raised any more money in B.C.

De Souza, however, was not out of hot water. He had the distinction, and the liability, of being a member of the Association of Professional Engineers and Geoscientists in both Alberta and B.C.

In 2000, the B.C. association received complaints from members who couldn't see sufficient geological justification for spending so much money at Gallowai Bul River. The association investigated but did nothing.

GEOLOGIST REPRIMANDED

The Alberta body started an investigation, but didn't make a finding until July 2007, when it ruled that de Souza had committed numerous breaches:

- There wasn't adequate data to support the opinions and findings he expressed in his 1997 report.

- The methods he used to calculate resource estimates were not appropriate and the estimates were therefore suspect.

- The report portrayed the project as being more advanced than it actually was.

- The grades quoted in the report (and later discredited by the Geological Survey Branch) had been taken from a 1984 German report that contained insufficient data to support those grades.

- His $129 projected share value was based on "unsubstantiated tonnage and grade information and data."

Although these disclosure breaches were contained in offering documents, and investors had sunk millions of dollars into the companies on the basis of this disclosure, the Alberta association fined him only $5,000 plus a portion of costs, and ordered him to write a professional practice exam.

The decision was published by the Alberta association, but not by the B.C. association, where de Souza was also a member. Officials of the B.C. association say disclosure of the Alberta decision would breach his privacy rights.

On Aug. 1, 2007, just two weeks after the decision was rendered, de Souza resigned as the companies' consulting geologist.

Through all this controversy, Stanfield raised and spent millions of dollars, with no material result for investors.